Zeek claims total $550 million

Wednesday

Sep 11, 2013 at 2:38 PM

Almost 174,000 former Zeek Rewards users filed claim to money lost during their participation in the alleged Lexington-based Ponzi scheme.

BY NASH DUNNThe Dispatch

Almost 174,000 former Zeek Rewards users filed claim to money lost during their participation in the alleged Lexington-based Ponzi scheme. In an online letter to affiliates last week, court-appointed receiver Kenneth Bell said 173,782 individual claims, totaling about $550 million, were submitted through an electronic portal during the filing period, which lasted from May 15 through Sept. 5.It's estimated that about 840,000 total users lost money through Zeek Rewards, which was one of the first penny auction-based companies to present profit-sharing opportunities to its users.The U.S. Securities and Exchange Commission shut down the company in August 2012, alleging that Zeek Rewards raised close to $600 million from about 1 million worldwide users through the offer and sale of unregistered securities in its program. The SEC also claimed the company operated in "classic" pyramid and Ponzi scheme fashion, funding affiliate payouts with the buy-ins of newer investors.The program's chief officer, northern Davidson County resident Paul Burks, settled with the SEC and was fined $4 million. Burks has not been charged criminally.With the claims period expired, Bell said the next step is the reconciliation process, which involves him and his team evaluating the legitimacy of each request compared to the company's records.After most of the claims have been reconciled, the receivership team will issue determination letters on a rolling basis. The receivership team has collected about $325 million to date, mostly from financial institutions and online payment processors. Bell said he hopes to file a motion before the end of the year that would allow an interim distribution to claimants.A final distribution will not be made until all recovery efforts are complete, Bell said, which includes impending "clawback" lawsuits targeting various Zeek Rewards "net winners."It's estimated that about 77,000 "net winners" pulled out more money than they put in. Bell said it's likely that more than $295.5 million was "fraudulently transferred" to those profiteers.Bell intends to get that money back through "clawback" lawsuits, which seek to recover profits from investors, employees or other parties who were transferred money. Bell said the plan is to sue a handful of the largest profiteers by name, then follow up in a defensive class action, which will target a much larger group of "net winners.""I intend to pursue court action beginning this fall against those who profited from Zeek Rewards because those profits came at the expense of Zeek Rewards' victims," Bell wrote in his letter. "Potential targets of such action include 'net winners,' former insiders, and anyone else who knew or should have known of the inappropriate nature of Zeek Rewards' activities and yet facilitated those activities for their own gain."Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com. Follow Nash on Twitter: @LexDispatchNash